1989 (7) TMI 81 - HC - Income Tax

Summary

Issues:
1. Determination of the accounting system maintained by the assessee company.
2. Deduction of excess closing balance of bills receivable in the income for the assessment year.
3. Allowance of gratuity paid to employees under the cash system of accounting.
4. Treatment of statutory and contractual liabilities in the accounting system.
5. Acceptance of accounting method for profit calculation by the Income-tax Officer.

Analysis:

1. The court addressed the issue of the accounting system maintained by the assessee company. The first two questions were answered in favor of the assessee based on a previous decision. It was established that the assessee was maintaining the cash system of accounting, as per the findings of the Income-tax Appellate Tribunal.

2. The deduction of the excess closing balance of bills receivable in the income for the assessment year was also discussed. The court affirmed that the method of accounting employed by the assessee allowed for the proper deduction of income without adding the excess closing balance. This decision was based on the previous ruling between the same parties.

3. The court considered the allowance of gratuity paid to employees under the cash system of accounting. The Income-tax Officer initially denied the deduction, claiming the system was not cash but hybrid. However, the Tribunal found that the assessee consistently claimed gratuity expenses on a cash basis. Therefore, the court ruled in favor of the assessee, stating that the gratuity paid during the relevant year was a permissible deduction under the cash system of accounting.

4. Regarding the treatment of statutory and contractual liabilities in the accounting system, the court noted that questions 4 and 5 did not arise from the Tribunal's order and thus did not require an answer. These questions were left unanswered as they were not directly relevant to the case at hand.

5. The judgment concluded by answering the reference questions accordingly, with costs not specified. The court emphasized the importance of the findings of fact recorded by the Income-tax Appellate Tribunal in determining the accounting system followed by the assessee, ultimately ruling in favor of the assessee on the relevant issues discussed.